The true costs of creating a traditional purchase order.

Facing the growing threat of economic uncertainty and disruption to global supply chains, the need for more adaptable procurement processes has never been more apparent. In today's rapidly changing economic environment, a slow purchase order process is one thing that can cripple your business. Manual processes take too much time, making it all the more difficult to change to new suppliers. But the fact that invoice-based B2B purchases are more complicated than making a B2C purchase online doesn't necessarily mean that the process should be more complex.

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A look into existing processes

Traditional purchase orders have always played a central role in procurement, and they will continue to do so. That said, they also rely heavily on manual processes, which are cumbersome, and lacking in agility. Adding them to your ERP system can be difficult and time-consuming. For this reason, the additional costs add up quickly when you use them for smaller transactions.

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The problem for many companies is that they use these complex purchase order processes with all suppliers, including the numerous minor, inexpensive purchases that make up the long tail of their suppliers. This makes an expensive and unnecessarily time-consuming process due to the onboarding of long-tail suppliers just to be able to make a purchase.

In a B2B enterprise environment, you don't even think that purchasing could be as easy as a consumer-grade transaction.

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The Purchase Request Process is as simple as Writing a Post-it note

Filling out a request form, going through the approval and the payment should not take more than a few minutes.

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Nonetheless, traditional purchase orders are costly to businesses because of arcane processes, large amounts of paperwork and lengthy manual checks to ensure full compliance with Know Your Customer (KYC) checks and sanction list screenings.

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A typical purchase process today

1. Filling out a purchase order request form
2. Complete approval flow of the purchase request
3. Request quotations from suppliers
4. Analyse and select vendors
5. Conduct KYC checks and sanction list screenings
6. Onboard supplier
7. Create a purchase order
8. Complete approval flow of the purchase order
9. Place an order at the supplier
10. Receive goods or services
11. Receive invoice and match against the purchase order
12. Complete approval flow for the invoice
13. Authorise payment to the vendor
14. Pay the vendor using an account-to-account transfer
15. Complete documentation of the purchase
16. Audit and compliance processes
    

Often, one or many of these steps are outsourced, using over-complicated forms in not-so-user-friendly interfaces that can prolong a should-be simple process even further.

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How much do you pay for this?

Due to the significant differences between one industry and another and the complexity of individual purchase orders themselves, it is impossible to give a precise figure on how much it costs to create a purchase order. The Center for Advanced Procurement Strategy provides a range between US$50 and US$1,000 for one purchase order, depending on industry and the inclusion of supporting activities.

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The total cost will differ in every situation, depending on the degree to which each process flow stage is automated. For example, businesses might use their ERP -system to automate the creation of purchase orders, but steps like invoicing and records-keeping might still be done manually, consuming valuable work hours.

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Traditional purchase orders arose from complex strategic purchases. Handling a few big, regular suppliers cannot be a problem. Long-tail procurement, by contrast, typically encompasses hundreds or even thousands of small suppliers. For a minor purchase worth only €100, it hardly makes sense if the purchase order process costs €50 worth of documentation and working hours each time. You can quickly spiral out of control in terms of cost.

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Cut the costs and guide your company out of the maze of purchase processes.

Fortunately, there are some proven ways to greatly reduce the costs associated with purchase order creation and management.

We built Mazepay to make B2B payment processes as simple as a B2C purchase.

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1. Purchase request:

• Fill out the custom request form with only the essential details

2. Pre-approval

• With automated pre-approval flows, approving purchases doesn't take more than a few seconds.

3. Purchase:

• Complete your purchase and pay online, or by invoice using virtual cards.

4. Posting the receipt

• With automatic receipt collection, you don't have to worry about missing receipts, and accounting automatically gets all the required information for posting.

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How Traditional Purchase Orders can be improved?

Leverage online purchases:

Online purchases are not only faster – they are more convenient and provide a complete and readily accessible audit trail.

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Use process automation:

Automating procurement processes like purchase order creation eliminates the need for many manual tasks.

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Machine learning:

Machine learning helps you get rid of all the time-consuming trivial tasks.

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Mazepay reduces the need for conventional purchase orders in long-tail procurement, thus saving time and money. Get in touch today to find out more.